PEORIA — The city appears to benefit financially from a proposal to suspend its option to purchase the municipal waterworks.

That benefit, about $2.5 million annually for 20 years, is to come at the expense of Illinois American Water — and its customers.

“Our infrastructure has deteriorated, and we need to be able to address that,” City Manager Patrick Urich said Tuesday. “This provides us a source of revenue to move forward with addressing our infrastructure needs.”

Urich spoke during a City Hall news conference regarding the proposal, which for two decades would put on hold the water utility buyout option. Since 1889, the city has revisited that prerogative every five years. Most recently, the City Council voted last November to forego that privilege.

In return for a suspension, Illinois American is to pay the city about $1.45 million annually in work-permit fees. Currently, the water company pays about $280,000 per year.

Illinois American also is to pay a 3 percent franchise fee that’s expected to average about $1 million annually. Water company customers are to bear that cost directly. It is to be noted on their monthly bills.

According to Urich, the additional cost for the average residential customer would be $1.33 per month, or about $16 annually. The cost would grow proportionally, based on water consumption. For industrial customers, the average monthly hike would be $2.91.

Illinois American also agreed to a minimum infrastructure-improvement investment of $8 million per year, adjusted for inflation, for the life of the deal.

The council is expected to vote on the proposal March 25, following two public forums. The Illinois Commerce Commission also must sign off on it.

“We have a good private-public partnership with the city of Peoria, and we look forward to continuing it,” Illinois American spokeswoman Karen Cotton said. “We also look forward to not having to go through the buyout conversation every five years and spending additional resources on that subject.”

Much of the additional resources the city is to receive are to go toward street and sidewalk renovation, according to Urich.

“We haven’t had a residential sealcoating program or a pavement preservation program in the last five years,” he said. “All you have to do is drive on the city streets right now and take a look at the number of potholes we have and the impact this winter has had on our infrastructure.”

Revenue equivalent to what this proposal would generate would require a property tax increase of 11 to 12 cents per $100 assessed valuation, Urich said. The city gasoline tax would need to be increased 6 cents per gallon.

Still, both council members who attended the news conference suggested the proposed deal is tantamount to a back-door levy.

Page 2 of 2 - “To me, it’s a tax increase. I’m not for a tax increase,” said at-large Councilman Eric Turner, who voted to reject the buyout option.

Fourth District Councilman Jim Montelongo said 20 years is too long to suspend the buyout option. The five-year cycle helps keep Illinois American accountable.

Montelongo also said the proposal could lead to unchecked Illinois American rate increases. The commerce commission must approve such hikes. The last one for Illinois American came in 2012, Cotton said.

“I think it’s not going to be in the best interests of the residents. I’m just not happy with it,” said Montelongo, who voted to pursue a buyout. “We have no reason to give that option up every five years. To me, that just doesn’t make sense.

“I think we’re going to have a very divided council on it.”

Nick Vlahos can be reached at 686-3285 or nvlahos@pjstar.com. Follow him on Twitter @VlahosNick.